A Return About Your Payables, Not Your Business

MSME-1 is a half-yearly return reporting amounts a company owes to micro and small enterprise suppliers that have remained outstanding for more than 45 days from the date of acceptance of goods or services. It is filed by 30 April for the October to March half and by 31 October for the April to September half. Unlike most ROC filings it is conditional: if you have no such outstanding amounts, the obligation does not arise in the same way.

The test

Three elements have to coincide:

  1. The supplier is a micro or small enterprise, registered as such

  2. An amount is outstanding to that supplier

  3. It has been outstanding for more than 45 days from the date of acceptance or deemed acceptance

Medium enterprises are a separate category and the position for them differs. Verify the current scope, because the treatment of medium enterprises has been discussed and changed.

The dates

Half year

Period

Due

October to March

1 October to 31 March

30 April

April to September

1 April to 30 September

31 October

What goes in

• The supplier’s name and PAN

• The amount outstanding

• The date from which it is outstanding

• The reason for the delay

That last field is the one people underestimate. You are reporting, in a public filing, why you have not paid a small supplier.

The tax consequence sitting behind it

This is what makes MSME payment discipline matter far more than the return itself.

Under Section 43B(h) of the Income Tax Act, a deduction for payment to a micro or small enterprise is allowed only in the year of actual payment where payment is not made within the time limit under the MSMED Act.

In plain terms: pay a registered micro or small supplier late, and the expense may be disallowed in the year you incurred it and allowed only when you actually pay. For a company with significant MSME creditors at year end, that is a real tax cost in that year.

Verify the current formulation and the time limits, which depend on whether there is a written agreement, but the direction is settled: late payment to MSME suppliers is now expensive in income tax as well as reportable to the ROC.

What to actually do

Identify your MSME suppliers. Ask vendors for their Udyam registration. You cannot apply the rule to suppliers you have not identified, and most companies have never asked.

Flag them in the accounts payable system, so ageing can be run against the 45-day test rather than reconstructed twice a year.

Review ageing before each half-year end, not after.

Keep the acceptance dates, because the clock runs from acceptance, not from the invoice date.

How Northrop LLP helps

Northrop LLP identifies your MSME suppliers, sets up the ageing flag, files MSME-1 on both dates, and quantifies the Section 43B(h) exposure before the year end rather than at the audit.